1. 1 OPERATIONS MANAGEMENT for MBAs Second Edition Prepared by Scott M. Shafer Wake Forest University Meredith and Shafer John Wiley and Sons, Inc.

2. 2 Chapter 10 Materials Requirements Planning

3. 3 Introduction

4. Chapter 10: Materials Requirements Planning 4 Courtaulds Films 4 Produces plastic films used to package food 4 Plants operated 24 hours/day 7 days/week 4 Uses 60 types of raw materials to produce 40 types of film and offers 12,5000 make- to-order products 4 At end of 1980s, 25% of deliveries were shipped late because production planning and scheduling system unable to handle the complexity

5. Chapter 10: Materials Requirements Planning 5 Courtaulds Films continued 4 Visited the Formica Company to learn about MRP II 4 By 1990s Courtaulds implemented its own MRP II system 4 Became class A user 4 Employees now take pride in their excellent on-time performance

6. 6 Recording for the Blind & Dyslexic (RFB&D) 4 Loans textbooks in recorded or computerized format 4 When RFB&D moved to new facility, took opportunity to design and implement a new integrated production system 4 With limited resources needed to satisfy increasing demand 4 Fast response was also critical 4 Space limited amount of inventory

7. Chapter 10: Materials Requirements Planning 7 Recording for the Blind & Dyslexic (RFB&D) continued 4 Goal: achieve lead time of no more than 2 working days for at least 95% of all requests 4 To achieve this, would need to increase performance from 333 books per day by 28% 4 To help achieve goal, RFB&D implemented a resource requirements planning system

8. 8 MRP for Dependent Demand

9. Chapter 10: Materials Requirements Planning 9 Background 4 Independent Demand –automobiles, televisions, cartons of ice cream –demand often occurs at constant rate 4 Dependent Demand –most raw materials, components, and subassemblies –demand often occurs in lumps 4 Materials Requirements Planning (MRP) –designed when lumps in demand are known about before hand

10. Chapter 10: Materials Requirements Planning 10 Constant and Lumpy Demands

11. Chapter 10: Materials Requirements Planning 11 Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (ROP)

12. 12 Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (MRP)

13. Chapter 10: Materials Requirements Planning 13 The Boardsports Company

14. Chapter 10: Materials Requirements Planning 14 Skateboard Product Tree

15. Chapter 10: Materials Requirements Planning 15 Material Requirements of Sidewalk Special Fiberglass boards: 1  number of specials Wheel assemblies: 2  number of specials Wheels: 2  number of wheel assemblies Spindles: 1  number of wheel assemblies Locknut: 2  number of wheel assemblies Wheel mount stand: 1  number of wheel assemblies

16. Chapter 10: Materials Requirements Planning 16 Material Required to Produce 50 Sidewalk Specials Fiberglass boards: 1  number of specials = 1  50 = 50 Wheel assemblies: 2  number of specials = 2  50 = 100 Wheels: 2  number of wheel assemblies = 2  100 = 200 Spindles: 1  number of wheel assemblies = 1  100 = 100 Locknut: 2  number of wheel assemblies = 2  100 = 200 Wheel mount stand: 1  number of wheel assemblies = 1  100 = 100

17. Chapter 10: Materials Requirements Planning 17 Delivery 50 Sidewalk Specials in Week 10

18. Chapter 10: Materials Requirements Planning 18 Time-Scaled Assembly Chart for Skateboard

19. 19 The Mechanics of MRP

20. Chapter 10: Materials Requirements Planning 20 Primary Inputs to MRP System 4 Master Production Schedule 4 Bill of Materials File 4 Inventory Master File

21. Chapter 10: Materials Requirements Planning 21 Schematic of MRP System

22. Chapter 10: Materials Requirements Planning 22 Master Production Schedule 4 Based on actual customer orders and predicted demand 4 Indicates when each ordered item will be produced

23. Chapter 10: Materials Requirements Planning 23 Bill of Materials (BOM) 4 Indicates all the raw materials, components, subassemblies, and assemblies required to produce an item 4 Shows way a finished product or parent item is put together from individual components 4 Parent item shown at highest level or level zero

24. Chapter 10: Materials Requirements Planning 24 Bill of Materials continued 4 Parts that go into parent item are called level 1 components and so on 4 Production planners explode BOM for level zero item to determine the number, due dates, and order dates of subcomponents

25. Chapter 10: Materials Requirements Planning 25 Product Structure Tree

26. Chapter 10: Materials Requirements Planning 26 Inventory Master File 4 Detailed information regarding the quantity of each item, on hand, on order committed to use in various time periods 4 MRP system using inventory master file to determine the quantity available for use in a given period 4 If sufficient items not available, the system includes the item on the planned order release report

27. Chapter 10: Materials Requirements Planning 27 Low-Level Coding Original product tree structure Low-level-coded product tree structure

28. Chapter 10: Materials Requirements Planning 28 MRP System Outputs 4 Order Action Report –which orders are to be released and canceled during the current time period 4 Open Orders Report –which orders to expedite or deexpedite 4 Planned Order Release Report –time-phased plan for orders to be released in future time periods

29. Chapter 10: Materials Requirements Planning 29 MRP Computations 4 Process all items in BOM level-by-level –For each item at a level determine time phased gross requirements subtract on-hand and on-order amounts from gross requirements to determine net requirements apply lot-sizing rule to determine lot size offset the order release for lead time yielding time- phased planned order releases

30. Chapter 10: Materials Requirements Planning 30 MRP Computations continued Net requirements for planning period = gross requirements for planning period - planned on hand at planning period Planned on hand at planning period = current on hand + scheduled receipts prior to planning period - scheduled requirements prior to planning period

31. Chapter 10: Materials Requirements Planning 31 MRP Computations continued

32. 32 MRP Extensions

33. Chapter 10: Materials Requirements Planning 33 Capacity Requirements Planning 4 Capacity Using Overall Factors –production standards used to convert MPS into loads on each work center –loads assumed to fall in same period as finished goods in MPS 4 Bills of Capacity –same as capacity using overall factors but instead of using historical ratios, uses the BOM and routing sheets

34. Chapter 10: Materials Requirements Planning 34 Capacity Requirements Planning continued 4 Resource Profiles –same as bills of capacity except lead times included so workloads fall in the correct period 4 Capacity Requirements Planning –uses all preceding information plus MRP outputs to take existing inventories and lot sizing into consideration –also considers partially completed work, demands for service parts, and scrap adjustments

35. Chapter 10: Materials Requirements Planning 35 Work Center Load Profiles

36. Chapter 10: Materials Requirements Planning 36 Typical MRP II System and its Modules

37. Chapter 10: Materials Requirements Planning 37 Enterprise Resource Planning (ERP) 4 MRP II extends MRP systems to share information with other functional areas 4 Key component of MRP II is storing operational information centrally 4 ERP systems seek to integrate all business activities and processes throughout the organization 4 Goal is to provide real-time information to all employees that need it

38. Chapter 10: Materials Requirements Planning 38 Typical ERP System

39. 39 Copyright Copyright  John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Adopters of the textbook are granted permission to make back-up copies for their own use only, to make copies for distribution to students of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.